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BlueDart Express(BLUDAR)
On express growth path
| 2320
Blue Dart Express (BDE), the market leader in the air express segment (47% market share), has embarked on a journey of accelerated growth, likely to be driven by its superior infrastructure, technology and vast network. BDE has strong parentage (DHL owns 75% stake in Blue Dart) coupled with an owned fleet of aircraft, high service standards, pan-India presence and long term tie-ups with major corporates across various business segments. It is well poised to benefit from its first mover advantage and capture a larger pie of the steadily expanding air express (13% CAGR over CY12-CY15E) and ground express market (19% CAGR over CY12-CY15E). We expect revenue, EBITDA and PAT to grow at a CAGR of 18%, 22% and 19%, respectively, over CY11-15E. Leadership in air express segment to continue; ground express to consolidate BDE has a dominant market share of ~47% in the air express segment, nearly 4x its nearest competitor. We expect BDE to continue to maintain market leadership in the air express segment owing to its own fleet of aircraft enabling it to deliver time sensitive post and parcels efficiently to its vast corporate and retail clientele. On the other hand, we expect BDEs ground express segment to capture a higher share due to a shift from unorganised to organised players owing to an improvement in road infrastructure and implementation of GST. Competitive edge owing to inimitable infrastructure and pan-India presence BDEs fleet of seven aircraft and 7460 vehicles covers 33,739 locations via 20 ground hubs and 166 network routes providing it the competitive edge that enables it to have an advantage over existing domestic players and new entrants including MNCs trying to enter the industry. By virtue of its competitive head-start, it has been able to form tie-ups with corporates, which comprise ~94% of revenues providing strong revenue visibility. Valuations ripe at current fundamentals A debt-free balance sheet coupled with consistent revenue growth, improved EBITDA margin and asset light model enable BDE to catalyse its earning growth. We expect it to deliver earnings CAGR of 19% over CY11FY15E. The stock has traded at a one year average PE multiple of 29x and two year average PE multiple of 27x. We expect the earnings momentum to continue with improved cash flows and ascribe a multiple of 27x FY15E. We initiate coverage on BDE with a HOLD rating and a target price of | 2381.
Exhibit 1: Valuation Metrics
CY10 Netsales (| Crore) EBITDA(| Crore) Net Profit (|Crore) EPS (|) P/E (x) Price/Book (x) EV/EBITDA(x) ROCE(%) ROE(%) 1149.9 154.7 94.7 39.9 58.2 10.1 35.4 24.8 17.4 CY11 1492.3 176.7 124.2 52.3 44.4 8.3 31.0 23.3 18.7 FY13E* 2169.2 267.3 176.4 59.4 39.1 6.6 25.3 23.4 17.0 FY14E 2070.7 262.4 172.7 72.7 31.9 5.5 20.5 23.5 17.3 FY 15E 2447.4 319.5 209.6 88.2 26.3 4.6 16.4 24.0 17.5
Valuation summary
CY10 PE(x) Target PE(X) EV to EBITDA(x) Price to Book(x) RONW (%) ROCE(x) 58.2 59.7 35.4 10.1 17.4 24.8 CY11 44.4 45.6 31.0 8.3 18.7 23.3 FY13E* 39.1 40.1 25.3 6.6 17.0 23.4 FY14E FY 15E 31.9 32.8 20.5 5.5 17.3 23.5 26.3 27.0 16.4 4.6 17.5 24.0
Stock data
Market Cap (| cr) Debt (CY11) (| cr) Cash (CY11) (| cr) EV (| cr) 52 Week H/L (| cr) Equity Capital (| cr) Face Value (|) DII Holding (%) FII Holding (%) 5512.3 0 40.3 5472.1 2630/1383 23.76 10 9.67 3.34
Price movement
6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 Apr-12 Jul-12 Oct-12 Dec-12 BlueDart (R.H.S) Nifty (L.H.S) 2,900 2,700 2,500 2,300 2,100 1,900 1,700 1,500 Mar-13
Analysts name
Bharat Chhoda bharat.chhoda@icicisecurities.com Soumojeet Kr Banerjee soumojeet.banerjee@icicisecurities.com
* FY13 for 15 months, FY13E EPS is annualised Source: Company, ICICIdirect.com Research
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Company background BlueDart Express (BDE) was founded in 1983. Global logistics major DHL acquired an 81.03% stake in BDE in 2005. In 2012, DHL diluted ~6.03% stake in BDE through an offer for sale to comply with the Sebi requirement of minimum public holding of 25% for listed corporates. BDE is the countrys premier integrated package distribution company, with a presence in over 33,739 locations domestically and 220 countries worldwide. The company has one subsidiary and an associate company namely Concorde Air Logistics Ltd and Blue Dart Aviation Ltd (BDA) with 100% and 49% stake, respectively. BDA is the only scheduled cargo airline in India providing express cargo services to BDE. Blue Dart has always been a frontrunner in pioneering technology to empower customers with innovative solutions and a superior customer service. BDE has been awarded Superbrand status 2011 (six years in a row), Starbrand status 2011 (twice in a row) and Powerbrands 2011 (twice in a row).
Promoter
Induction of fourth and fifth B 737-200s express freighters. DHL acquired 81.03% shareholding in 2005. First to induct two B757-200
1983-84
1991-93
1994
1996-2002
2004-06
2007-09
2009-2012
Introduced track and trace technology. Introduced employee and customer satisfaction survey. E-mail network started
Inducted two B737s. Website launched in 2000. Induction of third B 737-200 in 2001 Sales alliance with DHL in 2002
Inducted third B757-200. Inducted fourth B757 on 25th anniversary of BDE. Introduced multiple products, awarded Superbrand. Fist integrated BDE-DHL facility at Bengaluru airport
ISO9001-2008 certified. Introduced net promoter score. Pilots smart truck. Launches GOLREEN. Inducts fifth B757
Management Profile
Sharad Upasani (Chairman): Previously associated with IMF, Government of India and Government of Maharashtra. Anil Khanna (Managing Director): Overall 32 years of experience and 20 year plus experience with BlueDart Express. Yogesh Dhingra (Finance Director & CFO): Overall 28 years of experience and 20 year plus experience with BlueDart Express. Tulsi Mirchandaney (MD BlueDart Aviation): Overall 38 years of experience and 17 year plus experience with BlueDart Express. Malcolm Monteiro (Director): Senior VP and Area Director, South Asia, DHLE, previously MD BlueDart Express.
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Investment Rationale
Advantage BDE in absence of domestic integrated players
The express industry in India is estimated at ~| 10,870 crore in FY12 and is expected to grow at an average rate of 17% to | 17,450 crore by FY15. The industry is highly fragmented with ~2500 players but very few integrated players. In the organised segment, the postal department together with large players constitutes 72%, 15% is held by semiorganised players while the residual is with other smaller players. Major domestic players in the organised segments like BlueDart, DTDC, FirstFlight, etc. in collaboration with global majors like DHL, FedEx, TNT and UPS constitute the organised express industry in India. BlueDart with strong parentage of German express giant DHL and own fleet of aircraft has an end-to-end delivery network covering 166 network routes and 20 ground hubs together with seven air network stations. BlueDart is the undisputed market leader with 47% market share in the air express segment and commands ~ 13% share in the ground express segment. BDEs revenue is mainly driven by the institutional business constituting ~94% of total revenue with the remainder coming from retail clients. We believe BDE is well poised to benefit from its first mover advantage and capture a larger pie of the steadily expanding air express (13% CAGR over CY12-15) and ground express market (19% CAGR over CY12-15).
25 20 15 Percentage 10 5 0 -5 -10 GDP RATE Total Domestic air cargo growth 2006 2007 2008 2009 2010 2011
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500 400 000 tonnes 300 200 100 0 Scheduled cargo operators (Domestic) Total Domestic Cargo carried (Belly Cargo) 2001-02 2010-2011 International Cargo (Belly cargo) 100.7 24.8 160.6 97.5 382.0 262.6
30 20 10 0 -10 -20 Scheduled cargo operators growth Total Domestic cargo growth Belly cargo growth 2003 2004 2005 2006 2007 2008 2009 2010 2011
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BDEs pole position in air express segment to continue amid growing ground express segment
The organised segment of the express industry constitutes 48%, which is further segregated into air express (AE) and ground express (GE). In the organised segment, ground express comprises 55% market share whereas the air express industry forms 45%. As of 2012, air express has a market size of | 2340 crore and is expected to grow at a CAGR of 13% in FY12-15E. Ground express with a market size | 2870 crore is poised to grow at a faster CAGR of 19% during the same period.
Exhibit 8: Courier industry: Organised & unorganised
10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 9260 8190
| Crores
5660 5210
6648 6070
7830 7050
2012
2013 Organised
2014 Unorganised
2015
2011
2012E
2013E
2014E
2015E
BDE being an early mover holds a market share of ~47% in the air express segment making it the virtual leader in the category with the nearest competitor commanding ~12% market share. We believe BDE would continue to maintain its pole position in the air express segment due to its early mover advantage and inherent benefit due to owned fleet of aircraft and an extensive network built over the years. Moreover, BDE also commands a healthy market share of ~13% in the ground express segment. We believe BDE will be able to leverage its brand and unmatched reliability record to garner volumes in the rapidly growing ground express segment.
Exhibit 10: Air express market share - CY2011 Exhibit 11: Ground express market share - CY2011
19.2 11.8
28.4 46.1
14.8
28.0
12.6 12.9
Blue Dart Competitor 1
26.2
Competitor 2 Competitor 3 Others
Blue Dart
Competitor 1
Competitor 2
Others
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In the institutional business, the BFSI sector is a major contributor to revenue for BDE followed by IT, auto and pharma. These sectors are poised to grow at a robust rate over the next three or four years. Another segment that is expected to play a pivotal role for the express industry is the e-commerce segment, which is growing at a significant rate and would provide a massive push to the express freight segment.
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6%
94%
Institutional
Retail
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Further, with implementation of GST, there will be a transition from the unorganised segment to the organised segment in the logistic sector, as participants will insists on invoices for transactions to benefit from input credit set-off. This transition to the organised segment bodes well for players like BDE as more institutional participants transit through organised players increasing their volume.
Exhibit 20: Transition to organised sector
Warehouse: Landed Cost: | 550 Warehouse cost: |10 Margin: | 0 VAT: | 22.4 Selling Price: | 582.4
Wholesaler Landed cost: | 582.4 Margin: | 17.6 VAT credit: | 22.4 VAT: | 24 Selling Price: | 601.6
Retailer Landed cost: | 601.6 Margin: | 23.4 VAT credit: | 24 VAT: | 25 Selling Price: | 626
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CAGR 77%
24
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Financials
Tonnage growth to drive revenues
BDEs presence in the fastest growing segment of the logistics sector and its dominant position in air express with continuously expanding presence in the ground express segment would enable it to garner higher tonnage. We expect BDE to log tonnage growth at a CAGR of 18% over CY11 to FY15E to 698,500 tonnes. We believe BDEs air express and ground express segments tonnage will grow at a CAGR of 11% and 20%, respectively, over CY11 to FY15E, respectively. Further, according to our expectation, the ground express segment would gain higher traction, going ahead, due to implementation of GST, better infrastructure facilities and higher outsourcing to 3PL players. We expect revenue growth from the ground express segment (25% CAGR over CY11 to FY15E) to outpace the air express segment growth (16% CAGR over CY11 to FY15E).
Exhibit 23: Tonnage growth momentum to continue
800 700 600 500 400 300 200 100 0 698.5 537.2 338.0 423.0 | C ro re 591.0
CY10
CY11
FY14E
FY 15E
1,659.3 1,464.5
1,697.0
125.1
110.1
123.3
CY11
FY14E
FY 15E
Air Express tonnage (000 tonnes) Ground Express tonnage (000 tonnes)
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15.00 10.00 5.00 0.00 Oct-08 Oct-09 Oct-10 Oct-11 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Oct-12 -5.00 -10.00 -15.00 -20.00 Change in ATF price Change in surcharge Feb-13
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Asset-light model, debt free status to enable steady improvement in PAT margin
BDE employs an asset light model as around 80% of its vehicle fleet is outsourced and retail operations are on a franchise basis whereas warehouses, hubs and aircraft are on a lease basis. Depreciation forms less than 2% of net sales. With increased volumes, the same is expected to reduce from 1.7% of net sales in CY10 to 1.4% in FY15E. With consistent revenue growth, higher EBITDA generation, low depreciation expenses and a debt-free status, we expect PAT to grow at a CAGR of ~19% over CY11-FY15E to | 209 crore and PAT margin to improve to 8.5% in FY15E from 8.3% in CY11.
Exhibit 29: PAT to grow consistently from FY13E to FY15E
250.0 200.0 | Crore 150.0 100.0 50.0 0.0 CY10 CY11 FY13E(15 mths) FY14E FY 15E 124.2 94.7 8.2% 8.3% 8.1% 176.4 172.0 8.3% 208.9 8.5% 8.6% 8.5% 8.4% 8.3% 8.2% 8.1% 8.0% 7.9%
Net Profit
24.8 18.7
23.3 17.0
23.4 17.3
23.5 17.5
24.0
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Valuation
BDEs strong institutional clientele virtually ensures consistent cargo volume growth enabling steady growth in revenue, going ahead. Considering strong revenue visibility, asset light model and debt-free capital structure, we have valued BlueDart Express on price to earnings multiple over FY15E. At the current price, BDE is trading at 32x FY14E and 26x FY15E. The stock has traded at an average PE multiple of 29x over the past year and 27x average PE multiple over the last two years. Going ahead, we expect BDE to post sturdy earnings growth. Also, we expect free cash flow to grow at a CAGR of 30% over CY11-FY15E and ascribe a multiple of 27x FY15E. However, given BDEs present rich valuations that factor its robust fundamentals, we initiate coverage on BlueDart Express with a HOLD rating and a target price of | 2381.
Exhibit 31: PE multiple band
2500.00 2000.00 1500.00 1000.00 500.00 0.00 May-07 May-08 May-09 May-10 May-11 May-12 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
10.0 X
15.0 X
20.0 X
25.0 X
30.0 X
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Financial summary
Profit and loss statement
(Year-end March) Total operating Income Growth (%) Aircraft CharterCost Other Aircraft Expenses Fuel Charges Other Operating Expenses Employee Cost Other Expenses Total Expenditure EBITDA Growth (%) Depreciation Interest Other Income PBT Total Tax PAT Growth (%) EPS (|) CY10 CY11 1,149.9 1,492.3 29.8 33.6 35.0 158.5 226.2 192.1 261.2 364.5 485.7 150.1 185.7 96.3 121.7 995.2 1,315.5 154.7 176.7 14.2 19.4 21.8 0.0 0.0 5.4 24.8 140.7 179.8 46.1 57.0 94.7 124.2 29.7 39.9 52.3 FY13E 2,169.2 16.3 36.4 325.4 368.8 715.8 271.1 184.4 1,901.9 267.3 21.0 24.4 0.0 14.0 256.9 82.2 176.4 13.8 59.4 FY14E 2,070.7 19.3 37.8 352.0 362.4 641.9 238.1 176.0 1,808.2 262.4 22.7 28.4 0.0 17.3 251.4 80.5 172.7 22.3 72.7 (| Crore) FY15E 2,447.4 18.2 37.8 440.5 440.5 707.3 281.4 220.3 2,127.8 319.5 21.7 32.1 0.0 17.8 305.1 97.6 209.6 21.4 88.2
Source: FY13 for 15 months FY13E EPS is annualised Company ICICIdirect.com Research
Balance sheet
(Year-end March) Liabilities Equity Capital Reserve and Surplus Total Shareholders funds Total Debt Long term Provisions Other Long term liabilities Deferred Tax Liability Total Liabilities Assets Gross Block Less: Acc Depreciation Impairment Net Block Capital WIP Total Fixed Assets Non-current Investments Long term loans & advances Deferred Tax Asset Inventory Debtors Loans and Advances Other Current Assets Cash Current investments Total Current Assets Creditors Other liab & Provisions Total Current Liabilities Net Current Assets Application of Funds CY10 23.8 521.3 545.1 0.0 0.0 0.0 21.62 566.7 327.5 143.8 0.0 183.7 26.7 210.5 96.9 112.4 3.5 2.2 153.3 85.9 0.0 35.4 0.0 276.8 96.9 36.5 133.4 143.4 566.7 CY11 23.8 640.0 663.7 0.0 0.0 0.0 21.96 685.7 395.2 162.1 0.0 233.2 6.7 239.9 74.7 201.9 3.8 2.6 189.0 95.6 0.0 40.3 0.0 327.4 130.0 32.1 162.0 165.4 685.7 FY13E 23.8 808.2 832.0 0.0 0.0 0.0 22.00 854.0 465.2 186.5 0.0 278.7 70.0 348.7 74.7 201.9 3.8 5.9 199.7 148.6 0.0 99.8 0.0 454.0 196.1 33.0 229.1 224.9 854.0 FY14E 23.8 972.9 996.6 0.0 0.0 0.0 22.03 1,018.7 535.2 214.8 0.0 320.4 60.0 380.4 74.7 201.9 3.8 5.7 261.0 170.2 0.0 136.1 0.0 573.0 181.5 33.5 215.0 357.9 1,018.7 FY15E 23.8 1,172.7 1,196.5 0.0 0.0 0.0 22.05 1,218.5 595.2 247.0 0.0 348.2 60.0 408.2 74.7 201.9 3.8 6.7 308.4 201.2 0.0 261.9 0.0 778.2 214.6 33.8 248.3 529.9 1,218.5
Key ratios
(Year-end March) Per share data (|) EPS Cash EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Total Operating income PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt/EBITDA Debt / Equity Current Ratio Quick Ratio CY10 39.9 48.0 229.4 1.0 14.9 13.5 12.2 8.2 0.7 48.7 30.8 17.4 24.8 32.8 58.2 35.4 4.8 4.8 10.1 0.0 0.0 2.1 2.1 CY11 52.3 61.4 279.3 2.0 16.9 11.8 12.0 8.3 0.6 46.2 31.8 18.7 23.3 28.2 44.4 31.0 3.7 3.7 8.3 0.0 0.0 2.0 2.0 FY13E 59.4 84.5 350.2 3.0 42.0 12.3 11.8 8.1 1.0 42.0 33.0 17.0 23.4 29.6 39.1 25.3 3.1 2.5 6.6 0.0 0.0 2.0 2.0 FY14E 72.7 84.6 419.5 2.9 57.3 12.7 12.1 8.3 1.0 46.0 32.0 17.3 23.5 29.8 31.9 20.5 2.6 2.7 5.5 0.0 0.0 2.7 2.6 FY15E 88.2 101.7 503.6 3.5 110.2 13.1 12.5 8.6 1.0 46.0 32.0 17.5 24.0 33.4 26.3 16.4 2.1 2.3 4.6 0.0 0.0 3.1 3.1
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Annexure: 1
Express Industry: Flow of Consignment
Exhibit 33: Flow of Consignment
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Annexure: 2
Industry Profile
Exhibit 34: Shipment profile: Volume
80 Percentage 60 40 20 0 Document Non-Document 69 31
Percentage
64 36
Document
Non-Document
Percentage
Percentage
60 50 40 30 20 10 0 Documents Non-Documents 20 80
55 45
18
Air Documents
Surface Non-Documents
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60 86
50 40 30 20 10 0 Documents Non-Documents 71
29
Documents
Non-Documents
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19
15
13
Document
Non-Document
30
100
Domestic
International
International
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RATING RATIONALE
ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;
Pankaj Pandey
Head Research ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai 400 093 research@icicidirect.com
pankaj.pandey@icicisecurities.com
ANALYST CERTIFICATION
We /I, Bharat Chhoda MBA Soumojeet Kr Banerjee MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc.
Disclosures:
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